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Producer Price Changes Abroad Likely To Be Felt at Home
Rising production costs abroad are likely to have a direct, but smaller, impact on U.S. goods
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Chinese data for the period ending May 2021 reported a 9% rise in producer prices; easily topping past inflation rates as far back as 2008. A 20+ year review of Chinese producer price changes and U.S. inflation shows a directional correlation. Past bouts of surging Chinese production prices have resulted in directionally similar, but less spirited, rises in U.S. inflation. The data do not provide insights into the expected duration of the latest surge in price inflation. In contrast, data from the Gardner Business Index, which measures new orders, production and backlogs; suggests that the current trend of rising U.S. prices is unlikely to be quickly resolved.
Historically, quickly rising production costs in China and overall U.S. inflation have directionally moved together, albeit with different amplitudes of change.
